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Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets

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  • Gal-Or, Esther

Abstract

When health care sponsors such as HMOs or PPOs can use "utilization reviews" in order to indicate to the provider what type of treatment to administer to the patient based upon a diagnosis that is established by the provider, it is possible to implement the "first best" levels of investment in cost control efforts and in aggressiveness of treatment. The implementation of the "first best" requires the utilization of the prospective reimbursement rule accompanied by the removal of all malpractice liabilities from the provider. In contrast, when the type of treatment cannot be enforced by the payer, implementation of the "first best" is not feasible if the payer places a higher weight on the welfare of consumers than that of providers in its objective function. In this case, the reimbursement scheme deviates from the prospective rule, and the provider assumes liability to part of the cost incurred by society as a result of unsuccessful medical outcomes. When the payer can enforce treatment only partially by establishing bounds on the range of acceptable treatments, a minimal acceptable standard will be established and the outcome will be an intermediate case between the above two extremes. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • Gal-Or, Esther, 1999. "Optimal Reimbursement and Malpractice Sharing Rules in Health Care Markets," Journal of Regulatory Economics, Springer, vol. 16(3), pages 237-265, November.
  • Handle: RePEc:kap:regeco:v:16:y:1999:i:3:p:237-65
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    Cited by:

    1. Marie Allard & Pierre Thomas Léger & Lise Rochaix, 2009. "Provider Competition in a Dynamic Setting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 457-486, June.
    2. Daniel Montanera, 2016. "The importance of negative defensive medicine in the effects of malpractice reform," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(3), pages 355-369, April.
    3. Feess, Eberhard & Ossig, Sonja, 2007. "Reimbursement schemes for hospitals, malpractice liability, and intrinsic motivation," International Review of Law and Economics, Elsevier, vol. 27(4), pages 423-441, December.
    4. Vislie, Jon, 2009. "Incentive Contracts for Public Health Care Provision under Adverse Selection and Moral Hazard," HERO On line Working Paper Series 2001:6, Oslo University, Health Economics Research Programme.
    5. Paula González, 2004. "Should physicians' dual practice be limited? An incentive approach," Health Economics, John Wiley & Sons, Ltd., vol. 13(6), pages 505-524.
    6. Samwer Martina C., 2008. "When Less Liability Leads to More Care: Adverse Effects of Liability Regimes in Multitask Principal Agent Settings," Review of Law & Economics, De Gruyter, vol. 4(2), pages 641-664, December.
    7. Eberhard Feess, 2012. "Malpractice liability, technology choice and negative defensive medicine," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 13(2), pages 157-167, April.
    8. Socha, Karolina, 2010. "Physician dual practice and the public health care provision. Review of the literature," COHERE Working Paper 2010:4, University of Southern Denmark, COHERE - Centre of Health Economics Research.
    9. Socha, Karolina Z. & Bech, Mickael, 2011. "Physician dual practice: A review of literature," Health Policy, Elsevier, vol. 102(1), pages 1-7, September.
    10. Sonja Ossig & Eberhard Feess, 2004. "The impact of liability for malpractice on the optimal reimbursement schemes for health services," Econometric Society 2004 Far Eastern Meetings 396, Econometric Society.

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